0001310114-18-000032.txt : 20181107 0001310114-18-000032.hdr.sgml : 20181107 20181107160609 ACCESSION NUMBER: 0001310114-18-000032 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20181107 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20181107 DATE AS OF CHANGE: 20181107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICESOURCE INTERNATIONAL, INC. CENTRAL INDEX KEY: 0001310114 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 810578975 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-35108 FILM NUMBER: 181166311 BUSINESS ADDRESS: STREET 1: 717 17TH STREET STREET 2: 5TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 7208898500 MAIL ADDRESS: STREET 1: 717 17TH STREET STREET 2: 5TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: SERVICESOURCE INTERNATIONAL LLC DATE OF NAME CHANGE: 20041129 8-K 1 pressrelease09302018.htm 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 7, 2018
servicesourcelogo.jpg
________________
ServiceSource International, Inc.
(Exact name of Registrant as specified in its charter)
________________
Delaware
 
001-35108
 
81-0578975
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)

717 17th Street, 5th Floor
Denver, CO 80202
(Address of principal executive offices, including zip code)
(720) 889-8500
(Registrant's telephone number, including area code)
________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02 Results of Operations and Financial Condition.
On November 7, 2018, ServiceSource International, Inc. issued a press release announcing its results for the quarter ending September 30, 2018. A copy of the press release is attached as Exhibit 99.1 to this current report on Form 8-K and is incorporated by reference herein.
The information contained in Item 2.02 of this current report on Form 8-K and the Exhibit 99.1 attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
 
Press release dated November 7, 2018 and entitled "ServiceSource Reports Third Quarter 2018 Financial Results"

EXHIBIT INDEX
Exhibit
Number
 
Description
 
Press release dated November 7, 2018 and entitled "ServiceSource Reports Third Quarter 2018 Financial Results"







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date:
November 7, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
SERVICESOURCE INTERNATIONAL, INC.
 
 
 
 
 
 
 
By: /s/ PATRICIA ELIAS
 
 
 
Name : Patricia Elias
 
 
 
Title : Executive Vice President, General Counsel






EX-99.1 2 srev09302018exhibit991.htm EXHIBIT 99.1 Exhibit


ServiceSource Reports Third Quarter 2018 Financial Results
Total Revenue of $57.2 million
GAAP Net Loss of $6.6 million; Non-GAAP Net Income of $0.7 million
Adjusted EBITDA of $3.1 million

DENVER, November 7, 2018 - ServiceSource (NASDAQ: SREV), a global leader in outsourced inside sales, customer success and recurring revenue growth and retention solutions, today announced financial results for the three months ended September 30, 2018, following its release of preliminary results on October 18, 2018.
“Our third quarter financial results and updated outlook for the year are disappointing, particularly given the recent underlying progress and momentum in the business,” said Christopher M. Carrington, CEO of ServiceSource. “In Q3 we experienced instances of volatility and different purchasing behavior by end users at three clients in particular that impacted the accuracy of our previous forecast. We anticipate these factors will likely persist with these clients in the coming quarters and we are adjusting our expectations accordingly.”
Mr. Carrington added, “Longer-term we believe dynamics in the marketplace support durable opportunity for ServiceSource. As companies progress through their digital go-to-market transformations, our model is squarely aligned to help them rationalize legacy channel models, migrate from field sales to inside sales models, and deploy customer success at scale to improve customer retention and lifetime value in a subscription and consumption world. We remain focused on positioning the Company to capture this opportunity in a way that will create sustainable value for all stakeholders.”

Key Financial Results
GAAP revenue for Q3 2018 was $57.2 million, a decrease of 1.7%, compared with $58.1 million reported for Q3 2017.
GAAP net loss for Q3 2018 was $6.6 million or $0.07 per diluted share, unfavorable compared with GAAP net loss of $5.2 million or $0.06 per diluted share reported for Q3 2017.
Non-GAAP net income for Q3 2018 was $0.7 million or $0.01 per diluted share, compared with non-GAAP net income of $2.0 million or $0.02 per diluted share reported for Q3 2017.
Adjusted EBITDA for Q3 2018 was $3.1 million, compared with $5.7 million reported for Q3 2017.
A reconciliation of GAAP to non-GAAP financial measures is provided following the Consolidated Financial Statement tables contained within this press release.
Key Business Highlights
Recruitment of inside sales and customer success visionary Debbie Dunnam to the executive leadership team.
Solid sales momentum with year-over-year growth in transaction value, inclusive of four new logo wins and 13 expansion transactions.
Signing of a multi-million dollar expansion into EMEA and APJ for a nine-year tenured client.
More than 50% of team members now located in lower cost markets, with 90% year-over-year growth in the Manila and Sofia offices.





Fourth Quarter 2018 Outlook
For Q4 2018, ServiceSource is providing the following guidance:
Revenue of $60.0 million to $63.0 million.
GAAP net loss per share of $0.01 to $0.03; non-GAAP net income per share of $0.02 to $0.04.
Adjusted EBITDA of $4.0 million to $6.0 million.
Fiscal 2018 Outlook
Considering the year-to-date results and Q4 2018 outlook, ServiceSource anticipates the following full-year financial results that are based on a number of assumptions that management believes are reasonable at the time of this earnings release:
Revenue of $237.0 million to $240.0 million.
GAAP gross margin of 30.0% to 31.0%; non-GAAP gross margin of 34.0% to 35.0%.
GAAP operating expenses of 38.5% to 39.0%; non-GAAP operating expenses of 32.0% to 32.5%.
GAAP net loss of $28.2 million to $30.2 million; non-GAAP net income of $2.5 million to $4.0 million.
GAAP net loss per share of $0.31 to $0.33; non-GAAP net income per share of $0.03 to $0.04.
Adjusted EBITDA of $12.0 million to $14.0 million.
Please see the third quarter 2018 Earnings Call Deck on the Events and Presentations section of the Investor Relations website (http://ir.servicesource.com/events-and-presentations) for a reconciliation between GAAP and non-GAAP measures in our guidance.
Quarterly Conference Call
ServiceSource will discuss its third quarter 2018 results and financial guidance today via teleconference at 1:30 p.m. Pacific Time. To access the call within the U.S., please dial (877) 293-5486, or outside the U.S. (914) 495-8592, at least five minutes prior to the start time. Conference ID number: 2783779. In addition, a live webcast of the call will also be available on the Investor Relations section of the ServiceSource website under Events and Presentations. A replay of the webcast will also be available on the Company's website at http://ir.servicesource.com.





Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding our expectations for financial and operational performance, whether our go-forward model will produce anticipated benefits, and whether our improved execution and emerging capabilities will translate into desired results. These forward-looking statements are based on our current assumptions and beliefs, and involve risks and uncertainties that could cause our results to differ materially from our forward-looking statements. Those risks and uncertainties include: a decline in client renewals, the loss of one or more of our key clients or the contraction in our revenue from one or more of our key clients, in each case resulting in churn, or our clients not expanding their relationships with us; the risk of problems implementing our technologies or that our technologies will not meet customer expectations; that the market for our solution is underdeveloped and may not grow; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; changes in market conditions that impact our ability to sell our solutions and/or generate service revenue on our customers' behalf; the possibility that our estimates of service revenue, opportunity under management, and other metrics may prove inaccurate; our ability to keep customer data and other confidential information secure; our ability to adapt our solution to changes in the market or new competition; problems encountered by our clients in their business that may cause them to cancel or reduce their business with us; our ability to achieve our expected benefits from international expansion; economic or other adverse events or conditions affecting the technology industry; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; and other risks and uncertainties described more fully in our periodic reports filed with the Securities and Exchange Commission, which can be obtained online at the Commission's website at http://www.sec.gov. All forward-looking statements in this press release are based on information currently available to us, and except as may be legally required we assume no obligation to update these forward-looking statements.
About ServiceSource
ServiceSource International, Inc. (NASDAQ:SREV) helps the world’s leading brands grow closer to their customers. As a global leader in outsourced inside sales, customer success and recurring revenue growth and retention solutions, ServiceSource expands customer lifetime value by helping companies to more efficiently and effectively find, convert, grow and retain their B2B customer relationships. Trusted by global market leaders in the cloud/XaaS, software, technology hardware, medical device & diagnostic equipment and industrial IoT sectors, ServiceSource sells, manages or renews $9 billion of revenue annually on behalf of its clients. Leveraging a robust technology suite, predictive data models and more than 3,000 revenue delivery professionals speaking 45 languages, only ServiceSource brings to market nearly 20 years of expertise and the ability to drive recurring revenue growth to more than 170 countries. To learn more, visit http://www.servicesource.com.
Connect with ServiceSource:
http://www.facebook.com/ServiceSource
http://twitter.com/servicesource
http://www.linkedin.com/company/servicesource
http://www.youtube.com/user/ServiceSourceMKTG










ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
 
 
 
 
 
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net revenue
$
57,173

 
$
58,132

 
$
176,869

 
$
173,103

Cost of revenue(1)
39,949

 
40,803

 
124,136

 
121,729

Gross profit
17,224

 
17,329

 
52,733

 
51,374

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing(1)
8,622

 
7,829

 
27,112

 
24,790

Research and development(1)
1,395

 
1,048

 
4,691

 
4,534

General and administrative(1)
12,907

 
12,543

 
38,953

 
40,029

Restructuring and other(1)

 
545

 
209

 
6,259

Total operating expenses
22,924

 
21,965

 
70,965

 
75,612

Loss from operations
(5,700
)
 
(4,636
)
 
(18,232
)
 
(24,238
)
Interest expense and other, net
(1,058
)
 
(2,839
)
 
(6,680
)
 
(7,555
)
Gain on sale of cost basis equity investment

 
2,100

 

 
2,100

Impairment loss on investment securities

 

 
(1,958
)
 

Loss before income taxes
(6,758
)
 
(5,375
)
 
(26,870
)
 
(29,693
)
Provision for income tax benefit (expense)
133

 
180

 
(294
)
 
(227
)
Net loss
$
(6,625
)
 
$
(5,195
)
 
$
(27,164
)
 
$
(29,920
)
Net loss per share, basic and diluted
$
(0.07
)
 
$
(0.06
)
 
$
(0.30
)
 
$
(0.34
)
Weighted average common shares outstanding, basic and diluted
92,113

 
89,511

 
91,271

 
88,907

 
 
 
 
 
 
 
 
(1) Reported amounts includes stock-based compensation expense as follows:
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Cost of revenue
$
194

 
$
385

 
$
752

 
$
969

Sales and marketing
717

 
982

 
2,436

 
2,834

Research and development
24

 
42

 
146

 
107

General and administrative
1,560

 
2,074

 
5,699

 
6,486

Restructuring and other

 
352

 

 
352

Total stock-based compensation
$
2,495

 
$
3,835

 
$
9,033

 
$
10,748







ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
 
 
 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
63,527

 
$
51,389

Short-term investments

 
137,181

Accounts receivable, net
48,812

 
56,516

Prepaid expenses and other
5,365

 
6,112

Total current assets
117,704

 
251,198

 
 
 
 
Property and equipment, net
36,216

 
34,119

Contract acquisition costs
2,938

 

Deferred income taxes, net of current portion
68

 
70

Goodwill and intangible assets, net
6,334

 
6,419

Other assets
4,484

 
3,566

Total assets
$
167,744

 
$
295,372

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,358

 
$
4,574

Accrued taxes
145

 
651

Accrued compensation and benefits
17,059

 
19,257

Convertible notes, net

 
144,167

Deferred revenue

 
1,282

Accrued expenses
4,292

 
6,625

Other current liabilities
6,230

 
2,104

Total current liabilities
30,084

 
178,660

 
 
 
 
Revolving line of credit
32,000

 

Other long-term liabilities
6,519

 
4,603

Total liabilities
68,603

 
183,263

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock
9

 
8

Treasury stock
(441
)
 
(441
)
Additional paid-in capital
368,628

 
359,347

Accumulated deficit
(269,662
)
 
(246,207
)
Accumulated other comprehensive income (loss)
607

 
(598
)
Total stockholders’ equity
99,141

 
112,109

Total liabilities and stockholders’ equity
$
167,744

 
$
295,372










ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
For the Nine Months Ended September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(27,164
)
 
$
(29,920
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
13,398

 
17,167

Amortization of debt discount and issuance costs
 
5,843

 
6,951

Amortization of contract acquisition costs
 
1,361

 

Amortization of premium on short-term investments
 
(1,204
)
 
(172
)
Deferred income taxes
 

 
177

Stock-based compensation
 
9,033

 
10,396

Restructuring and other
 
470

 
2,522

Gain on cost basis equity investment
 

 
(2,100
)
Impairment loss on investment securities
 
1,958

 

Other
 
74

 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
7,322

 
12,307

Deferred revenue
 
174

 
(2,440
)
Prepaid expenses and other
 
180

 
387

Contract acquisition costs
 
(955
)
 

Accounts payable
 
(2,204
)
 
(813
)
Accrued taxes
 
(494
)
 
(1,019
)
Accrued compensation and benefits
 
(2,037
)
 
(4,713
)
Accrued expenses
 
(4,652
)
 
(839
)
Other liabilities
 
4,182

 
(1,375
)
Net cash provided by operating activities
 
5,285

 
6,516

Cash flows from investing activities:
 
 
 
 
Acquisition of property and equipment
 
(12,484
)
 
(13,843
)
Proceeds from sale of cost basis equity investment
 

 
2,100

Purchases of short-term investments
 
(480
)
 
(56,589
)
Sales of short-term investments
 
133,920

 
51,119

Maturities of short-term investments
 
4,240

 
3,506

Net cash provided by (used in) investing activities
 
125,196

 
(13,707
)
Cash flows from financing activities:
 
 
 
 
Repayment on capital lease obligations
 
(278
)
 
(52
)
Repayment of convertible notes
 
(150,000
)
 

Debt issuance costs
 
(192
)
 

Proceeds from revolving line of credit
 
32,000

 

Proceeds from issuance of common stock
 
759

 
1,062

Payments related to minimum tax withholdings on restricted stock unit releases
 
(766
)
 
(735
)
Net cash (used in) provided by financing activities
 
(118,477
)
 
275

Net increase/(decrease) in cash, cash equivalents and restricted cash
 
12,004

 
(6,916
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
134

 
(1,191
)
Cash, cash equivalents and restricted cash, beginning of period
 
52,633

 
48,936

Cash, cash equivalents and restricted cash, end of period
 
$
64,771

 
$
40,829







Use of Non-GAAP Financial Measures
To supplement its Condensed Consolidated Financial Statements presented in accordance with generally accepted accounting principles, or GAAP, ServiceSource provides investors with non-GAAP gross profit, net income (loss), net income (loss) per diluted share and Adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the closest GAAP financial measure is presented in the financial tables below under the heading, "GAAP to Non-GAAP Reconciliation."
ServiceSource believes non-GAAP financial information provided in this release can assist investors in understanding and assessing its on-going core operations and prospects for the future and provides an additional tool for investors to use in comparing ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures to investors.
Non-GAAP gross profit consists of gross profit plus adjustments to stock-based compensation, amortization of internally-developed software and amortization of purchased intangible assets.
Non-GAAP net income (loss) consists of net income (loss) plus stock-based compensation, amortization of internally-developed software, amortization of purchased intangible assets, restructuring and other related costs, impairment loss on investment securities, gain on cost basis equity investment, litigation reserve and amortization of contract acquisition costs related to the initial adoption of ASC 606, non-cash interest expense and applying an income tax rate of 26.5% and 40.0% as of September 30, 2018 and September 30, 2017, respectively, on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate. Stock-based compensation expense is expected to vary depending on the number of new grants issued, changes in the Company's stock price, stock market volatility, expected option lives and risk-free interest rates, all of which are difficult to estimate.
EBITDA consists of net income (loss) plus depreciation and amortization, interest expense and other income/(expense), and income tax benefit (expense). Adjusted EBITDA consists of EBITDA plus non-cash stock-based compensation expense, amortization of contract acquisition costs related to the initial adoption of ASC 606, restructuring and other related costs, gain on cost basis equity investment, litigation reserve and impairment loss on investment securities. ServiceSource uses Adjusted EBITDA as a measure of operating performance because it assists the Company in comparing performance on a consistent basis, as it removes the impact of the Company's capital structure and other non-cash or non-recurring items from operating results.
These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.











ServiceSource International, Inc.
GAAP To Non-GAAP Reconciliation
(in thousands, except per share amounts)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
Net revenue
 
 
 
 
 
   GAAP net revenue
 
$
57,173

 
$
58,132

 
$
176,869

 
$
173,103

  Non-GAAP net revenue
 
$
57,173

 
$
58,132

 
$
176,869

 
$
173,103

 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
 
   GAAP gross profit
 
$
17,224

 
$
17,329

 
$
52,733

 
$
51,374

   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
194

 
385

 
752

 
969

 
Amortization of internally-developed software
(B)
1,415

 
3,514

 
6,924

 
8,998

 
Amortization of purchased intangible assets
(C)

 
247

 
55

 
741

  Non-GAAP gross profit
 
$
18,833

 
$
21,475

 
$
60,464

 
$
62,082

 
 
 
 
 
 
 
 
 
 
 
Gross profit %
 
 
 
 
 
 
 
 
   GAAP gross profit
 
30.1
%
 
29.8
%
 
29.8
%
 
29.7
%
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
0.3
%
 
0.7
%
 
0.4
%
 
0.6
%
 
Amortization of internally-developed software
(B)
2.5
%
 
6.0
%
 
3.9
%
 
5.2
%
 
Amortization of purchased intangible assets
(C)
%
 
0.4
%
 
%
 
0.4
%
  Non-GAAP gross profit
 
32.9
%
 
36.9
%
 
34.2
%
 
35.9
%
Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
GAAP operating expenses
 
$
22,924

 
$
21,965

 
$
70,965

 
$
75,612

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
(2,301
)
 
(3,098
)
 
(8,281
)
 
(9,427
)
Amortization of internally-developed software
(B)
(265
)
 
(476
)
 
(632
)
 
(1,151
)
Amortization of purchased intangible assets
(C)

 
(131
)
 
(30
)
 
(394
)
Restructuring and other
(D)

 
(545
)
 
(209
)
 
(6,259
)
Amortization of contract acquisition costs - ASC 606 initial adoption
(E)
(367
)
 

 
(1,213
)
 

Litigation reserve
(K)
(2,250
)
 

 
(2,250
)
 

Non-GAAP operating expenses
 
$
17,741

 
$
17,715

 
$
58,350

 
$
58,381

 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
 
 
  GAAP net loss
 
$
(6,625
)
 
$
(5,195
)
 
$
(27,164
)
 
$
(29,920
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
2,495

 
3,483

 
9,033

 
10,396

 
Amortization of internally-developed software
(B)
1,680

 
3,990

 
7,556

 
10,149

 
Amortization of purchased intangible assets
(C)

 
378

 
85

 
1,134

 
Restructuring and other
(D)

 
545

 
209

 
6,259

 
Amortization of contract acquisition costs -ASC 606 initial adoption
(E)
367

 

 
1,213

 

 
Impairment loss on investment securities
(F)

 

 
1,958

 

 
Gain on cost basis equity investment
(G)

 
(2,100
)
 

 
(2,100
)
 
Litigation reserve
(K)
2,250

 

 
2,250

 

 
Non-cash interest expense
(H)
922

 
2,394

 
5,854

 
6,951

 
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate
(I)
(385
)
 
(1,506
)
 
(46
)
 
(1,012
)
Non-GAAP net income
 
$
704

 
$
1,989

 
$
948

 
$
1,857

 
 
 
 
 
 
 
 
 
Diluted net income (loss) per share
 
 
 
 
 
 
 
 
  GAAP net loss per share
 
$
(0.07
)
 
$
(0.06
)
 
$
(0.30
)
 
$
(0.34
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
0.03

 
0.04

 
0.10

 
0.12

 
Amortization of internally-developed software
(B)
0.02

 
0.04

 
0.08

 
0.11

 
Amortization of purchased intangible assets
(C)
0.00

 
0.00

 
0.00

 
0.01

 
Restructuring and other
(D)
0.00

 
0.01

 
0.00

 
0.07

 
Amortization of contract acquisition costs -ASC 606 initial adoption
(E)
0.00

 
0.00

 
0.01

 
0.00

 
Impairment loss on investment securities
(F)
0.00

 
0.00

 
0.02

 
0.00

 
Gain on cost basis equity investment
(G)
0.00

 
(0.02
)
 
0.00

 
(0.02
)
 
Litigation reserve
(K)
0.02

 
0.00

 
0.02

 
0.00

 
Non-cash interest expense
(H)
0.01

 
0.03

 
0.06

 
0.08

 
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate
(I)
0.00

 
(0.02
)
 
0.00

 
(0.01
)
  Non-GAAP diluted net income per share
 
$
0.01

 
$
0.02

 
$
0.01

 
$
0.02

Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
Shares used in calculating diluted net income per share on a non-GAAP basis
(J)
92,113

 
89,511

 
91,271

 
88,907






Footnotes to GAAP to Non-GAAP Reconciliation                
(A) Stock-based compensation. Included in our GAAP presentation of cost of revenue and operating expenses, stock-based compensation consists of expenses for stock options, awards and purchase rights under our stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense.
(B) Amortization of internally-developed software. Included in our GAAP presentation of cost of revenue and operating expenses, amortization of internally-developed software reflects non-cash expense for certain software purchases and software developed or obtained for internal use. We exclude these expenses from our non-GAAP measures because we believe they are not indicative of our core operating performance.
(C) Amortization of purchased intangibles. Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. We believe amortization of acquisition-related intangible assets, such as amortization of costs associated with an acquired company’s research and development efforts, trade names and customer relationships, are items arising from pre-acquisition activities and determined at the time of an acquisition. Although these intangible assets are continually evaluated for impairment, amortization of purchased intangibles is a static expense and not typically affected by operations during any particular period.
(D) Restructuring and other. Included in our GAAP presentation, we incurred expenses related to our restructuring effort to better align our cost structure with current revenue levels. Restructuring and other expenses consist primarily of stock-based compensation related to the accelerated vesting of certain equity awards, employees' severance payments, related employee benefits, related legal fees, asset impairment charges and charges related to leases and other contract termination costs. These are one-time in nature costs that are not indicative of our core operating performance.
(E) Amortization of contract acquisition costs - ASC 606 initial adoption. Upon adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 606”) using the modified retrospective approach, we capitalized approximately $3.3 million of previously expensed sales commissions from 2015, 2016 and 2017. Amortization of these amounts are included in our GAAP presentation as sales and marketing expense. We believe this non-cash amortization expense is not related to or indicative of our ongoing operating performance.
(F) Impairment loss on investment securities. We liquidated our investment securities during the first half of 2018 to have sufficient cash on hand to repay our $150.0 million convertible notes due August 1, 2018. Based on our decision to sell these investment securities, we determined an other-than-temporary impairment occurred as of March 31, 2018 and recorded an impairment loss, which represented the difference between the investment securities' amortized cost basis and fair value. This charge is not related to or indicative of ongoing operating performance.
(G) Gain on cost basis equity investment. In 2013, we made an equity investment in a private company for $4.5 million, which represented less than 5% of the outstanding equity of the company. Based on unfavorable growth trends and declining financial performance of this private company, we determined that the investment was fully impaired and recorded a $2.3 million and $2.2 million impairment charge in the third and fourth quarters of 2016, respectively. During the quarter ended September 30, 2017, we sold the investment for $2.1 million in cash and recorded the proceeds as a gain. This gain is not related to or indicative of our ongoing core operating performance.
(H) Non-cash interest expense. Under GAAP, we recognize interest expense at the effective interest rate which includes interest costs related to the amortization of debt issuance costs and debt premiums or discounts.  The difference between the effective interest rate and the contractual interest rate is excluded from our assessment of our operating performance because we believe that this non-cash expense is not indicative of ongoing operating performance. We believe that the exclusion of the non-cash interest expense provides investors a view of our core operating performance.
(I) Income tax effect on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate. This adjusts (i) the provision for income taxes to reflect the effect of the non-GAAP items A, B, C, D, E, F, G H and K noted above on our non-GAAP net income; and (ii) the income tax rate to a normalized effective tax rate of 26.5% for the three and nine months ended September 30, 2018 and 40.0% for the three and nine months ended September 30, 2017, respectively.
(J) Shares used in calculating diluted net income per share on a non-GAAP basis. Due to GAAP net losses in both periods, the share count for basic and diluted earnings per share is the same.
(K) Legal reserves. The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies. As of September 30, 2018, the Company has accrued a $3.75 million reserve relating to our potential liability for currently pending disputes. These reserves are one-time in nature charges that are not indicative of our core operating performance.






ServiceSource International, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(6,625
)
 
$
(5,195
)
 
$
(27,164
)
 
$
(29,920
)
Provision for income tax (benefit) expense
(133
)
 
(180
)
 
294

 
227

Interest expense and other, net
1,058

 
2,839

 
6,680

 
7,555

Depreciation and amortization
3,654

 
6,342

 
13,398

 
17,117

EBITDA
(2,046
)
 
3,806

 
(6,792
)
 
(5,021
)
Stock-based compensation
2,495

 
3,483

 
9,033

 
10,396

Amortization of contract acquisition asset costs - ASC 606 initial adoption
367

 

 
1,213

 

Gain on cost basis equity investment

 
(2,100
)
 

 
(2,100
)
Impairment loss on investment securities

 

 
1,958

 

Restructuring and other

 
545

 
209

 
6,259

Litigation reserve
2,250

 

 
2,250

 

Adjusted EBITDA
$
3,066

 
$
5,734

 
$
7,871

 
$
9,534


Our total depreciation and amortization expense was comprised of the following (in thousands):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Purchased intangible asset amortization
$

 
$
378

 
$
85

 
$
1,134

Internally developed software amortization
1,680

 
3,990

 
7,556

 
10,149

Property and equipment depreciation
1,974

 
1,974

 
5,757

 
5,834

Depreciation and amortization
3,654

 
6,342

 
13,398

 
17,117

Adjustments and other

 
24

 

 
50

Total depreciation and amortization
$
3,654

 
$
6,366

 
$
13,398

 
$
17,167















Investor Relations Contact for ServiceSource:
Chad Lyne
ServiceSource International, Inc.


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